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Keeping Your Balance: I’m sorry – you want to write-off what?

The IRS recently revealed its Top 12 or Dirty Dozen Tax Scams for 2015.  They include phone scams, identity theft, offshore tax avoidance, questionable tax shelters and inflated refund claims, to name a few. While these are very important and should be considered by all taxpayers, I thought I would highlight some of the more outrageous tax deductions that have been attempted.Kovaleski,-Mark

Let’s first look at some creative deductions that are NOT accepted by the IRS.

• The cost of speeding tickets – Even if you were in route to a business meeting, the cost of the ticket is a fine and therefore not deductible.

• Questionable dependents – The “family” dog may be man’s best friend, but does not qualify as a dependent. Also, your unborn child is a precious living soul, but not a deduction until he or she is born according to the IRS.

• Your new boat – One CPA had to inform their client that their new boat could not be deducted as a “water computer.”

• The cost of hiring a hit man – One gentleman tried to deduct the cost of hiring a hit man to get rid of his cheating wife. Denied! Hell hath no fury like a woman scorned?

• Cost of hiring an arsonist – Denied again, but that didn’t stop the owner of a failing furniture business from trying. The owner’s alleged plan was to collect the $500,000 of insurance proceeds and deduct the $10,000 he paid the arsonist. By the way, in case you were wondering, it was classified as a “consulting fee.”

• A home office deduction for drug dealing – A 1981 case involved a drug dealer who sold marijuana, cocaine and amphetamines. After being caught and convicted, he was then audited by the IRS. It was determined he owed $17,000 in back taxes on drug earnings never reported to the IRS. The drug dealer appealed, claiming the IRS did not take into account his tax deductible costs incurred in running a business. He won the audit for a home office deduction, but still went to prison.

There are a few outrageous and creative deductions that have been accepted by the IRS.

• Free beer – A brewery owner was allowed to deduct the cost of beer he gave away at tasting promotions. God bless America!

• Cat food – A junkyard owner had a big problem with snakes and rats. He set out bowls of cat food to attract wild cats. They got their nightly dinner but also took care of the snakes and rats making the junkyard safer for him and his customers. The pet food was allowed as a proper business expense.

• The cost of moving the family pet – Good news. Your pet is considered a personal effect, so as long as your move is associated with a job, any moving expenses are allowed.

• Fake boobs – This one is infamous and no article about outrageous tax deductions can leave this one out! An exotic dancer going by the name of Chesty Love (you can’t make this stuff up, folks) decided to deduct the cost of her breast implants as a business expense. She figured it would get her more tips. The deduction was first denied by the IRS. Ms. Love took the IRS to court and won claiming the breast implants were a stage prop essential to her act.

Finally, number 12 in the IRS Dirty Dozen Tax Scams is “frivolous tax arguments.” They mention to be skeptical of any claims or programs that say you are not required to pay taxes at all. Many of these arguments have been dismissed by court ruling. Oh, and by the way, there is a $5,000 IRS penalty for filing a frivolous tax return.

So, as many of you are sitting at your home or office, staring out through the icicles and organizing your information for your tax return wondering if there is a way to lower your tax bill, please remember the age-old advice from Martin A. Sullivan: “There may be liberty and justice for all, but there are only tax breaks for some!”

Mark J. Kovaleski, CPA, is a partner with Mengel, Metzger, Barr & Co. LLP. He can be reached at Mkovaleski@mmb-co.com.